Q2 GDP +0.7% …… but does it really mean much?

The second quarter GDP data released this morning was better than many had been expecting with a 0.7% q/q lift which (after some small upward revisions to previous quarters) takes us to a heady 9.6% up from the same period a year ago. Over the past 4 quarters GDP is now up 1.4% having been down 2.4% in Q1.

Nevertheless, given what we know has happened in NSW and Victoria since the middle of the year there is no doubt at all that the Q3 data, when we get it, will show a sharp decline which could well extend into the final quarter of this year. The possibility of a double-dip recession with declines in both Q3 and Q4 is now very real and therefore somewhat diminishes much excitement around these rather historical numbers.

What we can say is that a 0.7% q/q growth moves us, at least for the time being, into a situation where annualised growth (at just under 3%) is more in line with a ‘normal’ trend for Australia.

The household savings rate eased again this quarter to 9.7%; this remains somewhat elevated on a historical basis suggesting the potential for still further running down of savings as the deterioration in prospects in the south takes its toll on employment and sentiment.

The ABS provide us with quarterly data for State Final Demand, which is the domestic component of the state’s economy. The ABS Q2 data has Queensland State Final Demand up 2.0% q/q for a year-on-year increase of 11.5% (after a revised 0.3% q/q, 2.6% y/y rise in Q1).

This quarter the private and public sectors both grew at similar rates (Private +1.9%, Public +2.2%) with Private CAPEX making a particularly solid improvement (+5.7%). The chart below shows that this return to some meaningful growth from the Private sector is encouraging. However, over the past 2 years the total Private sector is up just 4.9% while the Public sector (which is equal to almost 40% of the Private sector), over the same period, has increased by 7.7%.

Obviously with so much of the country moving back into restrictions in the second half of this year, after what looked like such an encouraging period earlier in the year, the outlook for the Australian economy has changed dramatically. Whether or not we move into a double-dip recession or not does nothing to change the reality on the ground that the current lockdowns will be having profound effects across our economy. Not just in those areas actually locked down but also in those (like Cairns) which are locked out.

How the recovery plays out from here will continue to depend on future health outcomes and the roll-out and up-take of vaccines. The move to the magic target of 80% fully vaccinated is now (belatedly) well under way but if we wish to see real economic recovery we will need to see those targets reached as quickly as possible and all States and Territories secure in the knowledge that they can open safely and allow their economies to start the long road to full recovery.

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CONUS Quarterly Sept 2021

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